Creative Technology’s new device is ‘game changing,’ DBS says

Creative Technology’s new portable 3D audio device is “game changing,” DBS said in a note on Thursday.

“We came back impressed with the 3D sound experience via headsets,” DBS said.

The Super X-Fi dongle is a “plug-and-play” technology that offers 3D sound via headsets, DBS said, noting that 3D audio creates the perception of spatial sound, which resembles how humans hear in real life.

DBS noted that the Super X-Fi dongle, which would be compatible with headsets, smartphones and consumer entertainment devices, was targeting a mid-2018 release at a retail price of US$150. Creative also plans to license the technology to other companies, DBS noted.

DBS expected the product would be attractive to the Virtual Reality (VR) community and to premium headset users seeking augmented experiences in gaming and watching movies.

‘Much-needed lifeline’

“Super X-Fi technology could be a much needed lifeline for the company,” DBS said, noting that Creative gets the bulk of its revenue from audio products, such as speakers and headphones, where it faces stiff competition from new premium segment entrants and a proliferation of cheaper options from Chinese manufacturers.

Creative’s revenue from audio products has contracted an average 15 percent annually from 2014-2017, DBS said.

Setting a valuation

DBS doesn’t rate the stock. But it set a “base case” valuation of S$5.56 a share, which assumes Creative can capture a 0.5 percent share of the global headset market by fiscal 2020, which would take its users to 1.94 million.

It estimated that the 0.5 percent market share in headsets through dongle sales at US$120 each, a 20 percent discount to retail price, would lead to fiscal 2020 revenue of US$232 million. Creative’s revenue for fiscal 2017, which ended June 30, was US$69.9 million, DBS noted.

”Extension of the technology to third-party headset manufacturers would also result in some revenue,” DBS said, but added it didn’t factor that in to its valuation due to a lack of visibility.

The bull and bear cases

For a bull case, DBS set a valuation of S$8.10 a share, assuming 0.8 percent share of the global headset market, for fiscal 2020 revenue of US$372 million.

DBS’ bear case valuation was US$3.01, which assumes only a 0.2 percent share of the global headset market, resulting in fiscal 2020 revenue of US$93 million.

The stock ended Thursday up 2.99 percent at S$4.14. The stock has surged from its S$1.25 level last week, before the announcement of the new product.